FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 28, 1997
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Commission File Number 0-4485
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WESTERN BEEF, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3266114
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47-05 Metropolitan Avenue, Ridgewood, New York 11385
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 417-3770
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
5,465,530 shares of Common Stock, $.05 par value as of May 6, 1997.
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<PAGE>
INDEX
WESTERN BEEF, INC. AND SUBSIDIARIES
PAGE
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PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of
March 28, 1997 and January 3, 1997. 3
Condensed consolidated statements of income
for the twelve weeks ended March 28, 1997 and
the thirteen weeks ended March 29,1996. 4
Condensed consolidated statements of cash flows
for the twelve weeks ended March 28, 1997 and
the thirteen weeks ended March 29, 1996. 5
Notes to the condensed consolidated financial statements. 6
Item 2. Management discussion and analysis of financial condition
and results of operations. 7
PART II-OTHER INFORMATION 8
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 9
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<PAGE>
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The Private Securities Litigation Reform Act of 1995 provides a "Safe
Harbor" for forward-looking statements. Certain information included in this
quarterly report on Form 10-Q contains or may contain forward-looking statements
such as those statements pertaining to the renovation of the Company's existing
stores, the continued availability of credit lines for capital expansion, the
expected profitability of the wholesale division resulting from the elimination
of high risk accounts and the successful outcome of the legal proceedings
detailed in Part II (Other Information on page eight of this quarterly report).
Such forward-looking information involves important risks and uncertainties that
could significantly affect expected results in the future from those expressed
in any forward-looking statements made by, or on behalf of, the Company. These
risks and uncertainties include, but are not limited to, uncertainties relating
to economic conditions; delays and other hazards inherent in building and
construction; competition in both the retail and wholesale markets and
government and regulatory policies and certifications (in particular those
relating to the United States Department of Agriculture Food Stamp Program).
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<PAGE>
ITEM 1: Financial Statements
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
March 28, January 3,
1997 1997
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,779 $ 2,634
Accounts receivable, net of allowance for doubtful
accounts ( $506 and $386) 7,881 8,434
Inventories 16,889 17,668
Prepaid expenses and other current assets 1,885 1,461
Deferred income taxes 1,278 1,253
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Total current assets 31,712 31,450
Property, plant and equipment, net of accumulated
depreciation and amortization ($17,611 and $16,935) 42,069 41,276
Other assets 1,810 1,773
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Total assets $ 75,591 $ 74,499
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,608 $ 2,391
Current portion of obligations under capital leases 608 455
Accounts payable 12,627 11,414
Accrued expenses and other liabilities 4,865 5,862
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Total current liabilities 20,708 20,122
Deferred income taxes payable 1,581 1,484
Long-term debt, net of current portion 6,961 7,764
Obligations under capital leases, net of current portion 3,634 3,247
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Total liabilities 32,884 32,617
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Stockholders' equity:
Preferred stock, $.05 par value; shares authorized
2,000; none issued -- --
Common stock, $.05 par value; 15,000 shares
authorized; at March 28, 1997, 5,464 shares issued
and outstanding; at January 3, 1997, 5,463 shares
issued and outstanding 273 273
Capital in excess of par value 11,383 11,379
Retained earnings 31,173 30,360
Deferred compensation (122) (130)
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Total stockholders' equity 42,707 41,882
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Total liabilities and stockholders' equity $ 75,591 $ 74,499
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Twelve Thirteen
Weeks Ended Weeks Ended
March 28, 1997 March 29, 1996
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Net sales $72,795 $79,349
Cost of sales 54,653 59,760
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Gross profit on sales 18,142 19,589
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Operating expenses:
Rent expense-affiliates 649 623
Selling, general and administrative
expenses 15,719 16,426
Interest expense 281 208
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Total operating expenses 16,649 17,257
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Income before income taxes 1,493 2,332
Provision for income taxes 680 1,070
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Net income $ 813 $ 1,262
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Weighted average number of shares of
common stock and equivalents
outstanding 5,510 5,492
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Earnings per share of common stock $ .15 $ .23
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See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Twelve Thirteen
Weeks Ended Weeks Ended
March 28, 1997 March 29, 1996
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Cash flows from operating activities:
Net income $ 813 $ 1,262
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 991 741
Deferred income tax benefit 72 98
Provision for losses on accounts receivable 120 130
(Increase) decrease in assets:
Accounts receivable 433 894
Inventories 779 (473)
Prepaid expenses and other current assets (424) (38)
Other assets (37) 18
(Decrease) increase in liabilities:
Accounts payable 1,213 (529)
Accrued expenses and other liabilities (997) 510
Income taxes payable -- 16
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Net cash provided by operating activities 2,963 2,629
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Cash flows from investing activities:
Capital expenditures (2,046) (5,039)
Proceeds from sale of property, plant and equipment 270 77
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Net cash used in investing activities (1,776) (4,962)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 647 4,007
Payments on long-term debt and capital leases (693) (468)
Issuance of common stock 4 --
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Net cash provided by (used in) financing
activities (42) 3,539
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Net increase in cash and cash equivalents 1,145 1,206
Cash and cash equivalents, beginning of period 2,634 2,431
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Cash and cash equivalents, end of period $ 3,779 $ 3,637
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Cash paid during the period for:
Interest $ 281 $ 208
Income taxes $ 650 $ 730
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the twelve weeks ended
March 28, 1997 are not necessarily indicative of the results that may be
expected for the year ending January 2, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended January 3, 1997.
In 1997, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement is not expected
to have a material effect on the consolidated financial statements.
(2) Litigation:
There has been no material change in litigation from the year ended
January 3, 1997. See Part II of this report for further disclosure.
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<PAGE>
ITEM 2: Management Discussion and Analysis of Financial Condition and
Results of Operations
For the twelve weeks ended March 28, 1997, Western Beef, Inc., (the "Company")
achieved net income of $813,000 or $0.15 per share on net sales of $72,795,000,
as compared to net income of $1,262,000 or $0.23 per share on net sales of
$79,349,000 for the thirteen weeks ended March 29, 1996. Cost of sales, as a
percentage of net sales, decreased to 75.1% from 75.3% with a resultant increase
in the gross profit percentage to 24.9% from 24.7%.
Net sales for the first quarter of fiscal 1997 were $6,554,000 or 8.3%
lower than the sales for the first quarter of fiscal 1996. Approximately
$6,100,000 of this decline was due to the first quarter of fiscal 1996
containing one additional week. 1997 store sales for the comparable twelve week
period were down 5.6% resulting from reductions in the redemption of United
States Department of Agriculture food stamps; store renovations of two of its
larger-volume units and milder-than-normal winter weather. The comparable store
sales decline was offset by sales of the two new stores that the Company opened
during 1996.
The increase in the gross profit percentage for the first quarter of 1997
resulted from a higher percentage of retail sales which produce higher gross
profits than wholesale sales.
Operating expenses including selling, general and administrative
expenses, rent expense affiliates and interest expense, as a percentage of
sales, increased to 22.9% for the twelve weeks ended March 28, 1997 from 21.7%
for the comparable thirteen week period in 1996. The 1997 rate increase is
reflective of fixed charge expenses, such as rent and depreciation that do not
directly vary with sales.
Liquidity and Capital Resources:
Cash flows from operations were $2,963,000 for the twelve weeks ended March 28,
1997 as compared to $2,629,000 for the comparable thirteen week period of 1996.
Decreases in accounts receivable, accrued expenses and inventories were
partially offset by increases in accounts payable and prepaid expenses. The
decrease in accounts receivable resulted from lower wholesale division sales
caused by the Company's elimination of certain high risk accounts with the goal
of improving the profitability of its wholesale division. Cash flow from
operations plus cash on hand were sufficient to pay for capital expenditures and
long-term debt requirements.
Capital expenditures of $2,046,000 related to equipment purchases for, and
renovations of, several of the Company's supermarkets. The Company funded these
expenditures with cash flow from operations. The Company believes that cash on
hand and its $3,000,000 bank line of credit which expires on July 31, 1997 and
which is expected to be renewed by the bank, will be sufficient to meet its
operational needs. The Company also has several financial institutions that
would be available to finance new store equipment, usually over a five or seven
year period. As of March 28, 1997 there were no material commitments for capital
expenditures.
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<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Company has various outstanding litigation matters which it
considers to be in the ordinary course of business. In the opinion of
management, the outcome of these litigation matters will not adversely
affect the Company's financial position materially.
In April 1991 in New York Supreme Court, Putnam County, an action was
commenced against the Company to prevent a scheduled foreclosure of
certain collateral held by the Company as security for its loan to one
of the plaintiffs in the original principal amount of $85,000 of which
approximately $65,000 was outstanding. Thereafter, in a complaint
served in March 1992, plaintiffs interposed three causes of action on
behalf of themselves and a previously unnamed plaintiff, C.B. Foods,
Inc., which was a customer of the Company's wholesale business,
seeking (1) a declaration that the loan had been repaid; (2)
compensatory damages of $30,000,000 and exemplary damages of
$10,000,000 for fraud allegedly committed by the Company; and (3)
compensatory damages of $2,000,000 and exemplary damages of
$10,000,000 for abuse of process allegedly committed by the Company.
In its answer, the Company denied liability and all material
allegations of the complaint. Following motion practice and appeals
addressed to the sufficiency and adequacy of the claims asserted,
which resulted in the dismissal of plaintiffs' third claim for abuse
of process, the parties engaged in extensive discovery procedures
which are now completed. Plaintiffs have filed a note of issue placing
this case on the trial calendar, and sought to have this action tried
by a jury. On the grounds that the action sought a mixture of
equitable and legal relief, the Company moved to strike the jury
demand and compel a bench trial. The court granted the motion to
strike the jury demand and plaintiffs have filed a notice of appeal
from that order. The trial of this matter is scheduled to commence on
September 9, 1997. The Company intends to continue vigorously
defending this action. Although the Company believes it has
meritorious defenses to this action, an evaluation of the likelihood
of an unfavorable outcome cannot be made.
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant has not filed a report on Form 8-K during the quarter
just ended.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN BEEF, INC.
By: /s/Chris Darrow
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Chris Darrow
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 12, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
BEEF, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE TWELVE WEEKS ENDED MARCH
28, 1997
</LEGEND>
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